Insolvencies in Central and Eastern Europe

2
Insolvencies in
Central and Eastern
Europe in 2015
5
Focus on countries
PANORAMA
July 2016
INSOLVENCIES IN CENTRAL AND
EASTERN EUROPE
THE COFACE ECONOMIC PUBLICATIONS
C
ompanies in the Central
and Eastern Europe region
reported solid economic
growth rates as well as
more structured growth
last year. Thanks to the
healthy situation of the labour markets,
unemployment rates have been decreasing, to reach historically-low levels in
many cases. This, combined with rising
wages and low inflation, have made
private consumption a key driver for
growth. Investments, another important component of domestic demand,
grew – thanks to businesses’ improved
expectations and, in particular, the accelerated use of EU funds (during the final
year of previous EU budget availability) to
co-finance projects. Last but not least,
CEE companies have seen improving demand from their main export destination,
the Eurozone. Although recovery in the
Eurozone is weak, higher exports to the
region are compensating for the Russian
slowdown and the official ban on exports
of selected merchandise to Russia.
Positive macroeconomic conditions have,
unsurprisingly, led to an improved situa-
by Grzegorz Sielewicz, Coface Economist
tion for CEE businesses. The number of
insolvencies decreased over the course
of last year in 9 out of 13 countries and
the GDP-weighted regional insolvency
average was -14%. Obviously, company
insolvencies varied at different rates
among CEE economies. Double-digit
deterioration was recorded in Ukraine and
Lithuania, whereas Romania and Hungary
enjoyed significant improvements. Some
of these huge fluctuations hide country
specifics that affected their performances
last year and these are explained in this
report. The number of insolvencies has
not yet returned to the pre-crisis levels of
2008 for most countries. In the Czech Republic, insolvencies were almost 4 times
higher than in 2008, in Poland 1.8 times
higher and in Slovenia 2.2 times higher.
At the same time, company insolvencies
in Slovakia and Romania are still below
pre-crisis levels. Overall, however, 2015
insolvency statistics paint a more positive picture of CEE companies. This trend
should persist, as corporates continue to
benefit from the favourable economic
environment, especially when compared to the turmoil being experienced
by many other emerging economies.
ALL THE OTHER GROUP PANORAMAS ARE AVAILABLE ON
http://www.coface.com/News-Publications
The regional improvement is confirmed
by Coface’s country risk assessments,
which included several upgrades this
year. In January, Hungary’s assessment
was raised to A4, while in June there were
upgrades of Latvia to A4, Lithuania to
A3, Romania to A4 and Slovenia to A3.
Most CEE countries have thus moved to
acceptable risk levels.
Businesses will continue to take advantage of supportive conditions this year,
although insolvencies will decline at a
slower pace than last year. Coface forecasts that company insolvencies will drop
by 5.3% for the full year 2016.
The CEE Insolvencies Panorama examines the regional economic situation
that companies faced during the course
of last year. It then highlights particular
economies within the CEE, with a more
detailed focus on insolvencies, including
the best and worst performing sectors,
as well as the largest insolvencies. The
final section analyses the business
environment that CEE companies faced
in 2015, as well as the outlook for activity
in 2016.
2
PANORAMA
INSOLVENCIES CEE
DOSSIER
“The CEE region enjoyed solid growth last year
but corporates benefited even more, with average
regional insolvencies declining by 14%. Although
this year will be favourable, these exceptional
results on both the macro and micro sides are
unlikely to be repeated.“
Grzegorz SIELEWICZ
Group Coface Economist
based in Warsaw
1
INSOLVENCIES IN CENTRAL AND EASTERN EUROPE IN 2015
Countries in the CEE region1 enjoyed good economic conditions last year. The average regional
GDP growth rate accelerated from 2.6% in 2014,
to 3.3% in 2015. Moreover, last year’s GDP result
was the highest since the post-crisis level of
2009. This robust economic activity was supported by higher absorption of EU funding - due to
being the final year of access to the previous EU
budget. As most CEE countries are EU members,
they are able to benefit from Cohesion Funds,
which are often used to enhance activities in the
construction sector and various related industries.
Although 2015 saw an exceptional boost in EU
co-financed investment activities, this was not the
only factor in the region’s solid economic activity.
For the majority of CEE countries, strengthened
domestic demand, especially private consumption, was the main growth driver. Declining unemployment rates, rising wages, low inflation (or
even deflation in some economies), depressed
commodity prices and rock-bottom interest rates
all made positive contributions and led to household consumption being the most important
driver for growth. The propensity of households
to spend has increased - as confirmed by rising
consumer confidence indicators. Nonetheless,
consumers remained relatively cautious in their
spending habits as, in many cases, they had been
affected by the challenging times in the labour
market during 2012 and 2013. Despite this, households did become more inclined to purchase durable goods in 2015, rather than being focused on
daily necessities.
CEE economies are highly exposed to exports. An
example is the automotive sector, which sends the
bulk of its production to foreign markets. External
demand is also important for other sectors, especially in the smaller CEE economies, where they
need to take advantage of their export potential,
as their own domestic markets are often too small.
The region’s premier foreign trade destination is
the Eurozone, particularly Germany, where CEE
countries send not just final products but components for manufactured goods which are subsequently sold locally or exported. The external
environment supported CEE exporters last year.
Eurozone growth increased from 0.9% in 2014, to
1.6% in 2015. Although Germany recorded slightly
slower growth than in 2014, at 1.5% for 2015, this
was still a good result when compared to current
‘standards’ for advanced economies. Even though
the Eurozone’s improvement is weak, it can still
be defined as a recovery. Nevertheless, the recent
“Brexit”, combined with other political uncertainties, could affect business confidence.
An educated workforce, attractive labour costs
and the region’s geographical proximity to the
deep markets of the Eurozone and CIS countries,
have all been crucial factors enabling the CEE
to produce goods demanded by external markets and to be included in global supply chains.
However, some CIS markets, previously seen as
opportunities, have now entered into an economic slowdown. Russia, the most crucial market,
imposed an embargo on meat, fish, fruit, vegetables and milk products from the EU, US, Australia, Canada and Norway in August 2014. This is still
weighing negatively on a number of companies
in the CEE region. Although exporters have been
effective in their attempts to redirect exports
to alternative markets, a faster rebound in Russia’s economy, accompanied by the lifting of its
embargo, would bring a boost to foreign trade.
So far, however, this appears unlikely, as the EU is
more likely to prolong sanctions.
The following countries are included as the CEE region: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Serbia, Slovakia, Slovenia, Ukraine.
1
PANORAMA
3
INSOLVENCIES CEE
Table 1: Insolvencies in Central Europe 2014/2015
BULGARIA
Total insolvencies
Dynamics
2015
2015/2014
2014
Bancruptcies
2015
2014
Total number of
active companies*
Insolvency
rate**
2015
2015
592
644
-8.1%
n.a.
n.a.
400,000
0.15%
1,977
2,764
-28.5%
388
719
263,897
0.75%
13,877
12,772
8.7%
11,314
9,050
1,439,747
0.96%
131
145
-9.7%
n.a.
n.a.
192,000
0.07%
9,748
17,461
-44.2%
9,686
17,377
560,853
1.74%
830
963
-13.8%
830
963
220,000
0.37%
1,960
1,686
16.3%
n.a.
n.a.
99,200
1.98%
741
823
-10.0%
650
701
1,842,589
0.04%
10,170
20,120
-49.5%
n.a.
n.a.
450,286
2.26%
5,109
4,773
7.0%
2,062
1,831
126,262
4.05%
SLOVAKIA
446
522
-14.6%
354
407
539,089
0.08%
SLOVENIA
950
1,446
-34.3%
816
1,302
203,542
0.47%
UKRAINE
1,306
1,081
20.8%
1,290
1,063
1,117,000
0.12%
CROATIA
CZECH REPUBLIC
ESTONIA
HUNGARY
LATVIA
LITHUANIA
POLAND
ROMANIA
SERBIA
GDP WEIGHTED
AVERAGE
-14.0%
0.81%
* National statistics or estimations from expert organisations, average
** Share of insolvencies in a total number of active companies
Bankruptcy proceedings: This term refers to insolvency proceedings that are directed to achieve the orderly
wind-up of an insolvent enterprise with the objective of liquidating or reorganising the business.
Thanks to the environment of rising domestic demand and improving prospects on core foreign
destinations, businesses have felt comfortable with
expanding and addressing opportunities. The GDPweighted average of insolvencies in the CEE region
dropped by 14% in 2015, resulting in less than 1% of
bankruptcies in active firms. Only 4 countries among
the 13 analysed experienced an increase in insolvencies. These were the Czech Republic, Lithuania,
Serbia and Ukraine. It should, however, be noted
that within this group of weak performers Lithuania
particularly
suffered
from
the
embargo
implemented by Russia, its most important
trading partner. The biggest impact came from
the process of “weeding” the market from companies that still officially existed, despite being
insolvent for some time. This process, carried out
by the State Tax Inspectorate and Social Fund,
resulted in a significant rise in the number of
Lithuanian bankruptcies last year, making it
impossible to compare like for like dynamics with
previous years.
4
PANORAMA
Chart 1: Change in insolvencies in the CEE region since 2008 (2008=100)
Source: Coface
The dynamics of company insolvencies varied
between countries. The strongest rise, of nearly 21%, was recorded by Ukraine. The country’s
economy is still deteriorating. Its industries are
faced with contracting private consumption, due
to high inflation and weak confidence indicators,
within an environment of war-related destruction. In addition to the number of insolvencies
last year, many Ukrainian companies went out of
business without filing for insolvency. In contrast,
the biggest improvement was recorded by
Romania, where company insolvencies dropped by
almost 50%. The country’s high GDP growth rate
was supported by fiscal measures which boosted
retail sales and positively affected business operations. Nevertheless, the overall decline in insolvencies was aided by a high number of bankruptcies
among non-active companies.
Most CEE economies benefited from improvements in the labour market, which led to higher
consumer spending, Trade companies, however,
were still widely represented in the 2015 insolvency statistics. Many of these companies, challenged by strong competition and low margins,
sought ways of keeping costs under control and
finding new growth opportunities for expansion.
With countries benefiting from the last opportunities to use the former budget of EU funds
to support numerous construction projects,
insolvencies in the construction sector declined in
many countries. However, the construction sector
still displayed weak payment behaviour. In many
cases, losses suffered during previous challenging years have not yet been compensated for.
Moreover, the slow start in funding from the new
EU budget has already had a negative effect on
construction output during the first months of
this year. Better prospects for the sector are likely
to be seen as from 2017.
Insolvency figures varied between countries, as
they were not only affected by their economic
situations but also by insolvency definitions in
specific countries, with amendments to insolvency
laws, or more widespread use of insolvency
procedures.
INSOLVENCIES CEE
Favourable business conditions are continuing
in 2016. Further improvements in the labour
market, along with growing confidence, will reinforce household consumption as the main growth
driver for CEE economies. The contribution of
investments will not be as high as last year, due to
a slow start in new EU co-financed projects. This
is weakening the expansion of the construction
sector and various other industries associated
with it. On the external side, CEE countries will
remain active exporters, although the slowdown
of global trade could hamper their ambitions.
Global turbulence, including the steeper Chinese
slowdown, is particularly affecting Germany, the
CEE’s main partner, which could diminish export
dynamics. Confidence indicators could be hampered by rising political risks and uncertainties
related to Britain’s referendum decision to exit the
EU. Nevertheless, overall business conditions will
remain supportive, even if less so than last year.
Coface consequently forecasts that insolvencies
will decline (although at a slower rate than in
2015), with the average number of bankruptcies
down by 5.3% for the full year 2016. The biggest
slump in insolvencies will be seen in Serbia and
Lithuania - the latter of which is likely to include
a compensation effect following the strong surge
experienced last year. Estonia’s high dependence
on foreign demand, affected by the weak growth
of its main trading destinations, will cause a slight
increase in company insolvencies. Ukraine’s prolonged recession will lead to a further rise in the
number of bankruptcies. The following table
provides forecasted dynamics of insolvencies in
specific CEE countries:
Country
Company insolvencies
dynamics
2015
2016 Coface
forecast
-8.1%
-2.3%
CROATIA
-28.5%
-2.7%
CZECH REP.
+8.7%
-5.5%
ESTONIA
-9.7%
+3.4%
HUNGARY
-44.2%
-4.9%
LATVIA
-13.8%
-2.8%
LITHUANIA
+16.3%
-9.6%
POLAND
-10.0%
-8.9%
ROMANIA
-49.5%
-4.1%
SERBIA
+7.0%
-10.5%
SLOVAKIA
-14.6%
-4.3%
SLOVENIA
-34,3%
-2.6%
UKRAINE
+20.8%
+7.1%
GDP weighted
average
-14.0%
-5.3%
BULGARIA
PANORAMA
2
5
FOCUS ON COUNTRIES
Bulgaria - Private sector focuses
on deleveraging
Last year the Bulgarian economy expanded by
3.0%. The pace of growth exceeded expectations,
as well as results recorded in previous years (as
the highest growth seen between 2009 and 2014
was 1.6%). Economic activity in 2015 was supported by rising exports and, especially in the second
half of the year, domestic demand, with growing
private consumption and fixed investments. EU
funds, with their higher than anticipated absorption, benefited public investments and enhanced GDP growth. The dynamics of household
consumption are supported by the falling unemployment rate, which dropped below 10% for the
first time since 2009. Although employment will
be on an improving track, it should be noted that
the aging population and emigration are contributing to these lower unemployment rates.
Within this environment, domestic demand will be
the main growth driver this year. Coface’s forecast
for GDP growth is 2.1%. The highest contribution
will come from private consumption. Investments
will slow down, as EU funds will be less supportive
than last year and the private sector is still focusing on deleveraging. As Bulgarian companies are
highly indebted compared to their CEE peers, less
room for further leverage has led to weak credit
growth dynamics. Corporate debt is forecast to
reach 120% of GDP - i.e. above the level of 90%
of GDP considered “an alert threshold” in debt
literature2. On the other hand, corporate debt in
Bulgaria has not seen a rapid rise since 2008, as
was the case for the majority of large emerging
countries. On the exports side, corporates will be
able to benefit from the European Central Bank’s
moves to make the euro (to which the Bulgarian
lev is pegged) weaker. This enhances Bulgaria’s
competitiveness, as the list of its main export
destinations also includes non-euro countries.
Chart 2:
Dynamics of loans to private sector (y/y changes)
Source: Bulgarian National Bank
2
INSOLVENCIES CEE
However, there are doubts on whether the ECB’s
actions will bring the anticipated results. In terms
of both export potential and attracting FDIs, Bulgaria has the lowest levels of labour costs but
an unsupportive business environment. Limited
foreign capital inflows will drag on investment
growth and further economic expansion.
Although the closure of the Corporate Commercial Bank took place in 2014, it was only declared
insolvent by the courts in 2015. This bankruptcy
impacted public finances, as the guarantee fund
was unable to meet EU obligations of refunding
deposits of up to EUR 100,000 and commitments
were undertaken by the public sector. In addition,
further fiscal loosening will result from widening
expenditure, with the revision of the budget and
increasing borrowing needs. Nevertheless, public
debt will stay at a manageable level, increasing
from 27.0% in 2015, to 28.0% in 2016, according to
Coface’s forecast.
Chart 3:
Company insolvencies, by sectors, in 2015
Source: Coface
Corporate Commercial Bank’s insolvency was the
biggest bankruptcy last year. It related to liabilities worth almost EUR 1 billion and concerned
over 600 employees. However the overall impact
of this insolvency for households, businesses and
the entire economy was even bigger, as Corporate Commercial Bank was one of the largest
banks in Bulgaria. Other major bankruptcies
included sizeable businesses, such as the construction company Integrirani Patni Systemi and
Burgas Shipyards. As a result, Bulgaria’s insolvency
statistics last year were stronger for bankruptcies
of large companies whose payment problems
affected a great number of their counterparts.
However, with improving macroeconomic conditions, Bulgarian corporates took advantage of
rising demand and the general insolvency statistics
Cecchetti, S.G., M.S. Mohanty and F. Zampolli (2011) : «The Real Effects of Debt,» Bank for International Settlements, Working paper n°352
6
PANORAMA
INSOLVENCIES CEE
delivered a positive picture. In the course of 2015,
insolvencies dropped by 8% - translating to less
than 2 bankruptcies per 1,000 active companies.
Despite stronger demand, trade companies were
among those the most affected by bankruptcies,
Top 5 sectors
accounting for over a quarter of all insolvencies.
The construction sector was also widely represented in the statistics, as was the case already in
2014. Bankruptcies of both construction and real
estate companies took a 15% share.

Flop 5 sectors

Information service activities
Wholesale trade
Pharmaceuticlas
Retail trade
Manufacture of machinery and
equipment
Construction of buildings
Social work activities
Real estate activities
Water collection, treatment and supply
Land transport and transport via
pipelines
The 5 biggest insolvencies in 2015
Company Name
Sector
Number of
employees
Town
1.
CORPORATE COMMERCIAL BANK
Bank
629
Sofia
2.
INTEGRIRANI PATNI SISTEMI AD
Construction of roads and
motorways
96
Skriniano
village
3.
BURGAS SHIPYARDS JSC
Ship building
10
Sofia
4.
TC IME VEST
Financial service activities
n.a.
Sofia
5.
INTERTRUST HOLDING
Business and other
management activities
6
Sofia
7
PANORAMA
INSOLVENCIES CEE
Croatia - rebounding from a long
recession
of small and medium enterprises, it is dedicating
a programme of EUR 500 million. To address
the companies sector, the authorities intend to
tackle the obstacles that entrepreneurs and investors face in the country. The government has
announced that it will lower parafiscal levies, introduce changes to the judiciary system (in order
to harmonise court practices and shorten court
proceedings) and speed up the construction permit process3. Coface forecasts that GDP growth
will reach 1.9% this year, with further improvements in the labour market positively contributing
to economic activity. Nevertheless, the continued
deleveraging process is hampering a decisive
recovery in household spending. Contrary to last
year, investment will be mainly fueled by the public sector, with only minor growth from the corporate side. The persistently high debt burden is a
constraint to both the public and private sectors.
Although structural improvements are on the
agenda, the progress of governmental reforms is
uncertain.
Economic activity in Croatia has finally returned
to positive growth. After six consecutive years
of recession, Croatia recorded growth of 1.6% in
2015. This was supported by both external and
internal demand. In terms of the latter, household
consumption finally increased and delivered a
positive contribution to GDP growth - which had
not been the case during the previous three years.
The labour market improved, with falling unemployment levels and rising wages. Reductions in
personal income tax further encouraged consumer spending. Nevertheless, despite contracting,
the unemployment rate remains high. It stood at
16.3% in 2015 and, according to the latest available
data (chart 4), as of March 2016, at 14.9%. This
level is still the highest in the CEE region, as well
as being one of the highest in the entire European Union - just after Greece and Spain. Gross
fixed capital formation was supported by higher
absorption of EU funds, with investments growing
mainly in the public sector. However, improvements in this regard have also started to appear
in the private sector.
Chart 5:
Company insolvencies in Croatia, by sectors, in 2015
Chart 4:
Unemployment rate (%)
Source: Coface
Source: Eurostat
After years of excessive government deficit exceeding 5% of GDP, it declined to 3.2% of GDP
in 2015. The government is focusing on further
reducing the budget deficit, as well as stabilising
public indebtedness. The latter it is expected to
show a slight increase - but significantly less so
than in recent years.
Increasing business competitiveness is one of the
government’s priorities. To stimulate the growth
3
It is not only the macro side that improved last
year. In 2015, the number of company insolvencies
decreased by 28% y/y. However, the amount of 696
judicial compositions announced last year (out
of 1,977 total insolvencies), hides a high number
of submitted proposals for the opening of
bankruptcy proceedings. Bankruptcy proceedings spiked with the entry into force of the new
Bankruptcy Act in September 2015. Under the new
legislation, the National Financial Agency is required to file bankruptcy for any company whose
accounts have been blocked for more than 120
days, with a 8-day deadline for opening the
procedure. This led to a hike in the number of
bankruptcies in Croatia last ear. Among other
http://www.total-croatia-news.com/business/2947-good-news-for-entrepreneurs-croatian-government-to-reduce-parafiscal-levies
8
PANORAMA
INSOLVENCIES CEE
factors that contributed to insolvencies were short
bankruptcy procedures which were opened and
closed due to a lack of assets, no employees or the
non-release of financial statements to the official
bodies for three consecutive years. Another rule has
determined that having bank accounts blocked for
more than 60 days in a row is a reason for suggesting
judicial composition proceedings, which can lead to
agreements with debtors and a continuation of
business - or the opening of insolvency procedures.
Top 5 sectors

The construction sector is still widely represented
in insolvency statistics. Although the number of
construction company bankruptcies decreased
last year, the sector still accounted for a quarter
of all insolvencies – as was the case in 2014. The
list of flop sectors, which ranks business activities
with the highest insolvency rates, also includes
the textiles and clothing sector, as well as utilities
and public services. The latter suffered from a
53% increase in insolvencies in 2015.
Flop 5 sectors

Financial services
Utilities and public services
Mineral products, chemicals, petroleum,
plastics, pharmaceuticals and glass
Construction
Motor vehicles, motorcycles, other
vehicles and transport
Textiles, leather and clothing
Business and personal services
Electrical equipment, electronics and IT
Technology
Metals
Wood and furniture
The 5 biggest insolvencies in 2015
Company Name
Number of
employees
1.
ANTE JURKOVIĆ
1
44,755,535
Zagreb
2.
TLM Aluminium
487
41,615,840
Šibenik
3.
TRGOVAČKI CENTAR SOLIDUM
9
32,039,530
Zagreb
4.
ADRIA ČELIK
237
31,047,344
Kaštel Sućurac
5.
MERKUR-HRVATSKA
132
28,770,179
Zagreb
Total liabilities in Euro
Town
9
PANORAMA
INSOLVENCIES CEE
Czech Republic - GDP growth
leader in 2015
After years of fiscal consolidation, in 2014 the
situation became more relaxed and last year
government investments and consumption spending sped up to support economic activity. The
Czech Republic will continue to enjoy favourable
public finance indicators, with a moderate deficit
and a manageable level of public debt.
Last year the Czech economy recorded an impressive growth rate of 4.2%, beating all other CEE
countries in this regard. This positive result can
be attributed to an exceptional boost from public
investment. 2015 was the final year for using the
previous EU budget and the Czech Republic was
successful in tapping funds and engaging them
into EU co-financed investment activities. Inventories also expanded, with the purchase of military aircraft further enhancing GDP growth. It will
not be possible for the Czech economy to maintain such robust growth this year. Coface forecasts a lower, but still fair, growth of 2.4% for 2016.
Similar to last year, economic activity will be driven
by private consumption. The Czech Republic is
benefiting from a low unemployment rate which,
at 5.1% in 2015, is one of the lowest in the entire
European Union. Rising wages and low inflation
are further supporting private consumption.
In contrast to this growing private consumption, gross fixed capital formation is expected to
decrease slightly, following the strong rally it experienced last year. On the other hand, private sector
investments are likely to record an increase, thanks
to promising demand prospects which will increase companies’ capacities. As a manufacturing
hub for European brands, especially German ones,
the Czech Republic has benefited from becoming
a significant element in supply chains. Although
it still relies, to some extent, on the assembly
of foreign imported components and services,
the Czech economy has undoubtedly benefited
from a strong foreign presence. This also brings
risks, as these foreign firms could consider other
country locations, with more attractive costs, for
their new investments. Growth in employee compensation in the Czech Republic has been higher
than the increase in productivity and several
other countries in the CEE region could provide
lower labour costs.
From the public finance perspective, the accelerated use of resources from EU funds was a
significant contributor to reaching a low level
of deficit. The record-breaking low yields of government bonds were also supportive. In August
2015, medium-term state bonds were sold on the
primary market, for the first time in history, with
negative yields. Since then, a further ten auctions
of medium-term state bonds have been held on
the primary market with negative yields. Government treasury bills have continually achieved negative interest yields on the primary market and
the same phenomenon has also been seen on the
secondary market4.
Despite the impressive economic expansion that
the Czech Republic recorded last year, the number of company insolvencies increased by 8.7%
y/y, reaching almost 13,900 entities during the
period. It should be noted that most insolvencies concerned inactive self-employed persons,
as was the case in previous years. While good
macroeconomic conditions, with a significant
rise in private consumption, were favourable for
companies, the high competition experienced by
many sectors forced businesses to operate at low
margins. Although the positive situation of the
labour market is supporting households and their
spending habits, companies have found it more
difficult to hire employees, particularly specialised
ones. Moreover, growth in wages has resulted in
rising operational costs for corporates.
Chart 7:
Company insolvencies in the Czech Republic, by
sectors, in 2015
Chart 6:
General government deficit and debt (%)
*Coface forecast
Source: Convergence Programme (May 2016 update), Coface
4
Source: Coface
Convergence Programme of the Czech Republic, May 2016, http://www.mfcr.cz/assets/en/media/Convergence-Programme-CR-May-2016_v01.pdf.
10
PANORAMA
As in the previous year, insolvencies in the Czech
Republic in 2015 were dominated by retail trade
companies, in line with their quantity in the whole
economy. Nevertheless, their share dropped from
15.8% in 2014, to 13.8% in 2015. In contrast, the
construction sector’s share increased during the
period, indicating that liquidity problems and
overdue payments are still hampering the sector’s
business activities. Despite this, insolvency rates in
Top 5 sectors

INSOLVENCIES CEE
the retail and construction sectors have not risen
sufficiently to push them into the list of flop sectors. The challenging situation on the commodities
markets, with low prices, contributed to a strong
presence of mining and quarrying companies in
insolvency statistics. The manufacturing of coke
and refined petroleum products became one of
the flop sectors.
Flop 5 sectors

Manufacture of pharmaceutical
products
Remediation activities and other waste
management services
Insurance
Civil engineering
Mining support services activities
Manufacture of coke and refined
petroleum products
Air transport
Office administrative and other
business support activities
Manufacture of tobacco products
Financial service activities (except
insurance)
The 5 biggest insolvencies in 2015
Company Name
Sector
Number of
employees
Town
1.
KF Oil s.r.o.
Wholesale of fuels and related products
19
Praha
2.
RD CZ Energy s.r.o.
Trade of electricity
2
Praha
3.
VOKD, a.s.
Civil engineering
480
Ostrava
4.
LIJA a.s.
Wholesale of metals and metal ores
24
Frýdek-Místek
5.
EFEKTIM a.s.
Wholesale of household goods
10
Praha
11
PANORAMA
INSOLVENCIES CEE
Hungary - SME support measures
in force
Lending Programme), the central bank is continuing to use traditional measures. So far this year,
there have been three rate cuts, bringing the base
rate to 0.90%. There have been a large number
of rate decreases over recent years. The easing
cycles started in August 2012, when the base
rate was at 7%. Interest rate cuts also led to the
Hungarian National Bank being the first emerging
market central bank to enter a negative interest
rate environment. The overnight deposit rate has
been -0.05% since March this year.
The Hungarian economy has been recording solid
growth rates since its recession in 2012. EU funding
has been an important contributor to growth, but
by no means the only factor. The country’s high
pace of growth has been supported by government policies including monetary easing, more
unconventional measures aimed at boosting SME
lending and increasing public sector employment.
The perspectives for the Hungarian economy and
most of the country’s main trading partners have
been improving. Households have seen a growth
in demand for labour from both the public and
private sectors. They have also benefited from
the conversion of their foreign currency mortgage loans into domestic currency. Although the
growth of 2.0% forecast for this year by Coface
will be slower than the 2.9% achieved in 2015, this
will mainly be due to the decrease in absorption
of EU funds - which should speed up as from next
year. Nevertheless, ongoing improvements in the
labour market and fiscal measures (such as cuts
in personal taxes and VAT rates), are supporting
private consumption as the main driving force
behind the economy. Unemployment reached
an all-time low of 6.8% in 2015 and it further decreased to 5.6% in March this year. Employment is
likely to grow further, thanks to the hiring of employees by the private sector and governmental
programmes for public works.
In recent years, businesses have been suffering
from various taxes and quasi-taxes. These have
included additional financial burdens for the
country’s banks, energy and telecommunications
companies, as well as its biggest retailers. Despite
improvements to the budget situation and stronger growth, further taxes have been implemented
- such as a health tax, a tax on tobacco companies,
food inspection fees, taxes on financial transactions, taxes on chemical products and an internet
tax (the latter of which was revoked due to social
unrest). The possibility of further changes to the
country’s regulatory and legislative frameworks
has caused uncertainty, making companies reluctant to invest and expand their businesses. The
Hungarian central bank has implemented stimulus
measures, including the substantial lowering of interest rates and the Funding for Growth Scheme,
which provides low interest rate loans to SMEs.
Nevertheless, the entire corporate sector has
continued deleveraging. Additional measures, to
support further borrowing by SMEs, may contribute to the country’s economic activity. Among
larger entities, the sentiment is that there could
be improvements if no further tax burdens are
implemented. Banks will feel some relief, as the
banking tax was lowered at the beginning of this
year and the government has announced that it
will refrain from policy measures with negative
impacts on banking sector profitability. In addition to unconventional measures aimed at boosting investments (such as the new Market Based
Chart 8:
The Central Bank base rate
Source: The Central Bank of Hungary
All of these measures will still not be sufficient to
sustain economic growth at the levels recorded
last year, particularly with the slow start to using
EU funds from the new EU budget. Companies
are becoming more confident about the economic outlook and the Central Bank is continuing to
develop measures to discourage corporates from
deleveraging and to help boost the economy.
While the contribution of investments will be weaker this year, positive growth dynamics should be
recorded as from 2017. The most important segment in Hungary’s economic activity remains the
automotive sector, which created nearly 4.5% of
the country’s added value and over 10% of total
output. The industry’s relatively positive outlook
is benefiting from Hungary’s preferential business
climate for the sector, demand from Western Europe (the destination for most of its production)
and its continued cost competitiveness compared
to other Eurozone plants, which often suffer from
overcapacities.
Satisfactory economic growth, more favourable
prospects for Hungarian companies and improved payment experience all contributed to the
upgrade of the country’s assessment to A4 in
January this year. Improvements on the microeconomic side are also confirmed by insolvency
statistics. However the impressive 44% drop in
bankruptcies last year was mainly due to administrative terminations of inactive companies.
12
PANORAMA
Hungarian law determines that companies closing
their business year on December 31 must publish
their annual financial reports on or before the following May 31. If a company delays performing
this obligation, the tax authorities will impose a
default penalty and request that it publishes its
annual financial report within 30 days. If the company fails to comply with this request, the tax authorities will impose a second default penalty and
request it to publish the annual financial report
within 60 days. If the company fails to comply
with this second request, the tax authorities will
immediately withdraw the company’s tax number
and inform the appropriate registration court. The
registration court will declare the company terminated 20 days after receipt of notice from the
tax authorities and then initiate the forced deletion procedure. These regulations, designed with
Top 5 sectors

INSOLVENCIES CEE
the aim of deleting companies which no longer
perform business activities, particularly boosted
the insolvency statistics for 2014. These dormant
companies were thus less present in last year’s
bankruptcies, which led to a significant decrease
in insolvency numbers in 2015. Nevertheless, even
if 2015 insolvencies are compared with 2013 levels
(which seems more reasonable given the ‘administrative terminations’ of 2014), the improvement
is still marked. Strengthened demand, from both
domestic and external markets, has already reaped positive results in terms of insolvencies. The
high share of construction companies in total insolvencies decreased last year compared to 2014,
although the sector again took a humble top position in terms of bankruptcies (followed by wholesale and retail businesses).
Flop 5 sectors

Healthcare
Paper and packaging
Education
Energy
Electronics and Computer activity
Food
Printing
Wood
Banking and financial activities
Public utilities
13
PANORAMA
INSOLVENCIES CEE
Baltic States - Russia´s economic
deterioration less harmful than
expected
Coface forecasts that Lithuanian growth will
reach 2.8% this year, almost the double of the 1.6%
last year, following the slump in exports to Russia
which affected the country’s overall economic activity. Private consumption, supported by strong
wages growth, will remain the main driving force.
Although the trade sector was a significant contributor to economic activity last year, it has been
unable to avoid payment problems. Trade companies took a 29% share of insolvencies, while they
accounted for 26% of all bankruptcies in the previous year. They included the bankruptcy of the
Fresh Market UAB group, which initially ceased its
e-commerce operations, before announcing the
insolvency of its entire business. Overall, Lithuania’s economy saw insolvencies increase by 16.3%
last year. Intense competition and low margins
negatively affected the performance of some sectors, while the Russian embargo led to a relatively
widespread contraction of business activities.
Nevertheless, it would seem that the strongest
impact came from the process of “weeding” the
market from companies that still officially existed
despite having been insolvent for some time. This
operation, performed by the State Tax Inspectorate and the Social Fund, significantly boosted
the number of bankruptcies in Lithuania last year,
making it impossible to compare with the dynamics of previous years.
Among CEE economies, the Baltics States are
the most exposed to trading with Russia. The
ban on food imports, introduced in 2014, and
the deterioration of Russia’s economy have thus
posed significant risks for Baltic economies and
local businesses. Nevertheless, they are the part
of the European Union and joining the euro was
a demonstration of their political integrity with
Western Europe. Faced with contracting Russian
demand, the Baltics have shifted their export focus to other markets, while significant compensation is coming from improvements in domestic
markets. Unemployment rates are continuing to
fall, while wages are growing. Businesses are now
experiencing greater pressure to increase salaries,
due to the rising shortage of employees.
Household confidence in Lithuania is positive,
further benefiting from two increases in the minimum wage this year (January and July). There
are positive dynamics, with new lending for the
private sector and in terms of real estate loans.
The Lithuanian Central Bank has introduced
changes to reduce the risk of high household
indebtedness, with shorter maturities and more
restrictive calculations on financial burdens. 2015
was a challenging year for the construction sector. The sector’s added value gradually decreased
during the course of last year, to reach low, but
positive, dynamics in the first quarter of 2016.
A rising number of building permits and higher
demand for construction work indicate that this
year should bring some improvements for the
sector. The construction sector’s weak performance is confirmed by insolvency statistics which
show that construction companies reported the
highest insolvency rates, taking first place in the
list of Lithuania’s flop sectors.
Chart 10:
Company insolvencies in Lithuania, by sectors, in
2015
Chart 9:
Consumer confidence indicator
Implementation of
Russian embargo
Source: Coface
Source: Eurostat
Latvia is expected to record a slower pace of
growth. Nevertheless, the forecast rate of 2.3% for
2016 will be a relatively good result, considering
the deterioration of economic conditions in Russia and other CIS countries with which Latvia has
intense trading relations. Exports to Russia fell
by around a quarter in 2015 and a rebound is not
expected this year. As is the case for Lithuania,
14
PANORAMA
INSOLVENCIES CEE
Latvia’s economy is also expected to benefit from
growing domestic demand. The improvement in
the labour market is being supported by rising
wages, bolstered by increases in the minimum
wage in both 2015 and 2016. The unemployment
rate finally returned to single digits last year, for
the first time since 2008. This falling trend has
continued in recent months. Although there is still
room for a more gradual reduction of unemployment and government policies are focusing on
resolving structural shortages, further contraction
of unemployment is still being hindered by structural constraints. Business conditions vary according to sectors of activity. Latvia’s largest steel
producer, Liepajas metalurgs, resumed production in 2015 after it was declared insolvent in 2013.
Even so, the steel industry is still suffering from
low prices, due to Chinese oversupply, which is
affecting the global market. The European Commission’s anti-dumping regulations are bringing
some relief, but the sector’s situation remains
challenging worldwide. The construction sector is
continuing to face difficulties, while the deterioration in Russian demand and protectionist measures introduced by some European countries are
negatively affecting the transport sector. Both of
these sectors are clearly present in the country’s
insolvency statistics, with a high share of bankruptcies last year. Rising consumer demand was
not sufficient to bring sustainable improvements
for trade companies – a sector which saw one of
the highest frequencies of insolvencies declared
last year. Despite these negative elements, general insolvencies dropped last year, to 830 bankruptcies (13.8% lower than in 2014).
Similarly, Estonian businesses showed an improved insolvency picture for 2015. Bankruptcies
decreased by 9.7% compared to 2014. The sector breakdown mirrored that of Latvia. The list
of worst performers, in terms of bankruptcies,
included wholesale and retail trade, construction,
manufacturing and transportation. Insolvencies
in the transportation sector were mainly related
Lithuania: Top 5 sectors

to companies involved in the transportation of
goods by road in the CEE region, although the
biggest bankruptcy was that of Estonian Air, a
company which employed more than 250 employees and had liabilities of over 90 million euros.
On the macro side, Estonia generated the slowest
growth rate among the Baltics. The country recorded growth of 1.1% in 2015, although it is expected that economic activity will gradually increase, to reach 1.8% this year and close to 3%
in 2017. It should be noted that Estonia benefits
from a more diversified export structure than its
Baltic peers but its higher trading exposure to the
Nordic countries (than is the case for other CEE
economies) meant that it was affected by their
slower pace of growth. Although Finland recovered from its recession, growth was still weak,
at 0.5% last year. Norway and Denmark recorded
slower economic activity last year, compared to
2014. Despite Estonia’s diversification in terms
of trading markets, Russia remains a significant
destination for its exports. Moreover, Estonia suffered from low oil prices, which made its shale
oil production inefficient. While exports to EU
markets did deliver positive dynamics, household consumption was the strongest growth driver. Consumer spending has been supported by
positive developments in the labour market, with
falling unemployment rates and growth in both
minimum and real wages. Nevertheless, the unemployment situation will probably not improve as
much as it has done recently. Already in March
this year, unemployment, at 6.8%, was higher than
in the same period last year – in contrast to most
countries in the region which saw further falls in
unemployment during the period. The performance of the labour market will be affected by
the decline in the working-age population and the
Working Ability Reform, which will entice pensioners to return to the labour market. It is likely that
the unemployment rate will increase over the next
few years, although it is expected to stay safely
below the two-digit level.
Lithuania: Flop 5 sectors

Public administration and defence
Construction
Education
Administrative and support service
activities
Human health and social work activities
Accommodation and food service
activities
Other service activities
Transportation and storage
Mining and quarrying
Water supply, waste management and
remediation activities
PANORAMA
15
INSOLVENCIES CEE
The 5 biggest insolvencies in 2015 in Lithuania
Company Name
Sector
Number of
employees
Town
1.
FRESH MARKET UAB
Retail sale in non-specialised stores
693
Vilnius
2.
SKIRNUVA UAB
Construction of buildings
435
Alytus
3.
INTERNETINE PREKYBA
FRESH MARKET UAB
Retail sale via Internet
412
Vilnius
4.
LA - NIKA BALTICS UAB
Manufacture of underwear
407
Vilnius
5.
LIETUVOS JURU LAIVININKYSTE UAB
Sea and coastal freight water transport
378
Klaipeda
Latvia: Top 5 sectors

Latvia: Flop 5 sectors

Public administration and defence
Wholesale and retail trade
Mining and quarrying
Construction
Financial and insurance activities
Manufacturing
Electricity, gas, steam and air
conditioning supply
Transportation and storage
Human health and social work activities
Professional, scientific and technical
activities
The 5 biggest insolvencies in 2015 in Latvia
Company Name
Sector
Number of
employees
Town
1.
PĀRTIKAS KOMPĀNIJA SIA
Wholesale and retail trade
23
Riga
2.
TMMetal Baltic SIA
Manufacturing
56
Ogre
3.
METRADE SIA
Wholesale and retail trade
105
Riga
4.
Cēsu miesnieks SIA
Manufacturing
62
Cesis
5.
Baltijas Taksometre SIA
Transportation
422
Riga
16
PANORAMA
Estonia Top 5 sectors
INSOLVENCIES CEE

Estonia Flop 5 sectors

Water supply, waste management and
remediation activities
Wholesale and retail trade
Information and communication
Construction
Education
Manufacturing
Other service activities
Transportation and storage
Agriculture, forestry and fishing
Real estate activities
The 5 biggest insolvencies in 2015 in Estonia
Company Name
Sector
Number of
employees
Town
1.
ESTONIAN AIR AS
Transportation
256
Tallin
2.
LÕUNA PARK OÜ
Real estate
n.a.
Tallin
3.
PIDULA MÕIS OÜ
Real estate
n.a.
Kihelkonna
4.
REY SEAKASVATUS OÜ
Agriculture
30
Rapla
5.
B.W.T. KING AS
Wholesale and retail trade
320
Tallin
17
PANORAMA
INSOLVENCIES CEE
Poland - Houshold consumption is
strenghtening further
Poland since mid-2014, has mainly been caused
by low commodity prices. Positive inflation readings are forecast to be seen in the final months
of this year. Favourable labour market conditions
are expected to continue. Household consumption will be boosted by the introduction of a new
child allowance, which should encourage retail
sales, especially in the third and fourth quarters
of this year.
The Polish economy has been delivering solid
growth rates, of over 3%, since 2014. This path
will be continued and Coface forecasts that GDP
growth will reach 3.4% in 2016 (slightly below the
3.6% recorded last year). Polish growth continued
to be powered by domestic demand, with both
strong private consumption and increasing investments in fixed assets. The two previous years delivered impressive growth in terms of fixed asset
investments, even recording two-digit dynamics
in some quarters. Poland has been highly effective in its allocation and use of EU funds, which
also contributed to the growth levels recorded
last year. The support of EU funds also made positive impacts on the construction sector, thanks
to infrastructural projects. Nevertheless, the challenging times that the sector suffered from previously, are still constraining improvements in its
payment behaviour. On the housing side, companies have been benefiting from rising demand,
supported by the lowest levels of interest rates in
the country’s history. These modest rates not only
made mortgage loans more attractive but also led
to increased interest in property investments as
an alternative to the low interest rates on bank
deposits. 2015 saw a decrease in construction
company insolvencies, although they still constituted over one-fifth of all insolvencies. The effect
of the fading out of previous EU funds and the
slow start to current EU financial perspective has
already resulted in negative growth dynamics for
Poland’s construction output.
Chart 11:
Dynamics of industrial production and construction
output (%, y/y changes)
Although Polish exports’ share of GDP in 2015
was 49.4%, this is relatively low compared to the
country’s CEE peers. The economy is also subject
to the situation on global markets. This is particularly seen with Poland’s supply of components
used for final production by German industries.
Concerns over the slowdown in the biggest emerging markets, such as China, are important considerations for Poland due to its trade links. In addition to this and other external factors, Poland has
been suffering from a deterioration in sentiment,
as witnessed by currency depreciation and higher
spreads on government bonds. Investors became
more cautious when there was a change on the
Polish political scene, following the elections.
Some of the measures implemented by the new
government will come at high costs for public
finances (such as the child benefit programme
mentioned above), while plans to increase tax
collection will not bring the revenues anticipated.
Already, in January this year, Poland experienced
a downgrade of its rating for the first time, when
the Standard & Poor’s rating agency revised it
down from A- to BBB+. The rating agency put
the highest stress on the country’s political risks,
explaining that “Poland’s new government has
initiated various legislative measures that are
considered to weaken the independence and effectiveness of key institutions”. In order to fulfill
its election promises, the government introduced
burdens on the financial sector’s largest firms (including banks). This has, however, not hampered
the supply of loans so far. Another charge, which
aims to increase the competiveness of small and
medium enterprises, is the introduction of a new
tax on the retail sector. The final details of this
tax are now being discussed and it is likely to be
introduced shortly.
Chart 12:
Company insolvencies in Poland, by sectors, in 2015
Source: Central Statistical Office
Households have been benefiting from the positive situation on the labour market. The unemployment rate dropped from 10.3% in 2013, down
to 7.5% in 2015 and then further again to reach
6.3% in April 2016. In the main Polish cities and
locations with a high concentration of industries,
companies are struggling to fill job vacancies,
even if they offer higher compensation. Nominal
wage growth, at 3.5% last year, was enhanced
in real terms by deflation. Deflation, present in
Source: Coface
18
PANORAMA
INSOLVENCIES CEE
So far, sectorial taxes have not hampered Poland’s business activities, although a more cautious approach to fixed asset investments and
some levels of uncertainty over further burdens
are being expressed by a number of corporates.
Higher domestic demand and growing exposure
to export markets (supported by comfortable
levels of exchange rates) contributed to improvements in the corporate sector. Last year company
insolvencies dropped by 10% y/y. Sectors directly dependent on consumer demand benefited
from the improved prospects of Polish households, while profitable activity on export markets
(such as furniture and machinery) confirmed the
Top 5 sectors

insolvency statistics. Despite improving domestic and external economic conditions, as well as
low oil prices, bankruptcies in the transport sector increased. Due to their strong exposure to
foreign markets, road cargo transport companies
are suffering from a slump in demand from the
Russian market and the embargo. In addition,
some Western European destinations (Germany,
France) are subject to minimum local wage requirements, which are lowering the competitiveness
of Polish companies. Last but not least, domestic
competition in the sector remained strong, which
imposed the acceptance of lower margins amid
stable fixed costs.
Flop 5 sectors
Pharmaceutical industry
Metals
Telecommunications
Construction
Paper
Wholesale
Furniture
Retail
Chemical industry
Transports

The 5 biggest insolvencies in 2015
Company Name
Sector
Number of
employees
Town
1.
Spółdzielcza Kasa OszczędnościowoKredytowa
Financial
300
Warszawa
2.
HYDROBUDOWA Gdańsk
Construction
350
Gdańsk
3.
Q9
Wholesale
n.a.
Warszawa
4.
Hurtownia Opon KRAKUS Brożek
Wholesale
20
Kraków
5.
NFC POLSKA
Production and distribution
20
Szczecin
19
PANORAMA
INSOLVENCIES CEE
Romania - boost from the fiscal
side
year and even more in 2017. There will be also a
slight increase in public debt, to 40.9% this year,
despite having the strongest growth in the CEE
region. Nevertheless, public debt will remain at
a manageable level – lower than in a number of
other economies. The reduction of VAT rates has
resulted in a fall in inflation, which reached a historical low of -3.5% y/y in May 2016. This should
increase to positive territory in the second half of
this year, supported by growing private consumption, faster wages growth and the increase in the
minimum wage. Although these factors will put
upward pressure on inflation, VAT cuts mean that
high readings will not be delivered.
Economic growth in Romania reached 3.8% last
year. The highest contribution came from private
consumption, thanks to a fiscal stimulus. As from
1 June 2015, the value added tax rate for food
products decreased from 24% to 9%. The government accelerated the introduction of this measure, aimed at boosting household consumption,
and disposable income subsequently increased
following the VAT cut. Private consumption represents 63% of Romania’s GDP. A further cut, introduced this year, was the lowering of VAT rates on
non-food products (from 24% to 20%). Further
changes are planned as part of a new fiscal code.
These include scrapping the tax on dividends and
increasing the competiveness of enterprises via
lower wage costs and taxes on active micro-enterprises, as well as cuts in excise duties on fuel
and alcohol. Moreover, the minimum wage was increased by 19% in May 2016. All of these changes
will support growth this year, which is expected to
reach 4.2% according to Coface’s forecast.
Chart 13:
Retail sales in Romania (%, annual changes)
Source: Eurostat
The structure of growth last year showed an
increase of nearly 9% in investments. Similar to
other countries, Romania took the opportunity to
use EU funding in the final moments of access to
the previous budget. Net exports made a negative contribution to growth, due to strong imports
resulting from an increase in domestic demand.
The government has been able to implement fiscal support measures, thanks to the comfortable
situation of public finances. The general government deficit, already at a low level of 0.9% of GDP
in 2014, declined to 0.7% of GDP in 2015. Romania
has one of the most disciplined fiscal policies in
the EU and this resulted in a modest public debt
level of 38.4% of GDP at the end of 2015. However, strong tax cuts and expenditure increases are
expected to widen the budget deficit to 2.9% this
The corporate sector has benefited from a booming economy. The construction sector, which
had the highest insolvency rates in 2014, benefited from improvements in the housing sector, with anacceleration in new buildings and
construction permits. Large infrastructural projects, on the other hand, were often delayed.
Despite increased absorption of EU funds, institutional inefficiency hampered greater usage in
this regard. The construction sector constituted
16% of all insolvencies last year. It accounted for
one of Romania’s biggest insolvencies and was
one of the worst performing sectors in terms of
insolvency rates (almost 6 bankruptcies per 100
active construction companies).
Last year, insolvencies in Romania dropped by an
impressive 49.5%, y/y. However, a more detailed
analysis indicates that the highest decrease was
among non-active companies - a phenomenon
which resulted in a strong fall in total insolvencies. The share of companies which had zero
turnover, or did not submit financial statements
last year, amounted to 59%. The breakdown also
shows that a further 23% share was taken by very
small companies (with turnovers of up to EUR
100,000). Nevertheless, despite a contraction in
the number of bankruptcies, Romania’s insolvency rate remains the one of the highest among CEE
economies. There were more than 2 bankruptcies
per 100 active companies in 2015.
Liquidity management was one of the causes of
bankruptcies. The liquidity of companies has decreased, due to lengthy periods for collection of
receivables - despite one third of insolvent companies reporting increased turnover and higher
profits. Moreover, the days-sales-outstanding
ratio increased, after having doubled already in
2014 (181 days) compared to 2008 (95 days). The
weak financial performance that companies experienced in 2014 led to payment difficulties and
finally caused insolvencies in 2015. Overall sales
dropped by 5% during 2014 and the net result was
7.9% lower. Last but not least, the indebtedness
rate has increased significantly over recent years,
rising from 76% in 2008, to reach 123% in 2014.
20
PANORAMA
INSOLVENCIES CEE
Chart 15:
Company insolvencies in Romania, by sectors, in 2015
Chart 14:
Structure of insolvency proceedings
Turnover
2015
2014
Dynamics
2015/2014
Share in
total
Without financials
4,514
10,132
-55%
46%
Zero - no activity
1,303
3,766
-65%
13%
EUR 0-100K
2,287
4,082
-44%
23%
EUR 100K-500K
937
1,231
-24%
9%
EUR 500K-1,000K
268
327
-18%
3%
EUR 1-5 mio
455
476
-4%
5%
EUR 5-10 mio
66
79
-16%
1%
EUR 10-50 mio
51
66
-23%
1%
EUR 50-100 mio
3
8
-63%
0.03%
> EUR 100 mio
2
3
-33%
0.02%
Source: Coface
Source: BPI, MF, Coface
With growing household consumption and a
sizeable decrease in the VAT rate on food products, the retail sector benefited from booming
sales. This translated to a large drop, of 59%,
in retail insolvencies last year. Nevertheless,
Top 5 sectors

the high number of active retail and wholesale
companies led to the sector being the largest
group represented in the total insolvency
breakdown.
Flop 5 sectors

Health and social care
Manufacture of textiles, clothing and
footwear
IT
Sewage and garbage removal;
sanitation and similar activities
Financial intermediation
Construction
Real estate transactions
Hotels and restaurants
Other services rendered to enterprises
Food and beverage industry
The 5 biggest insolvencies in 2015
Company Name
Sector
Number of
employees
Town
1.
FAMILY HOME CONCEPT SRL
(FOSTA DOMO RETAIL SA)
Retail
1,052
Bucharest
2.
AMBIENT SRL
Wholesale and distribution
1,276
Sibiu
3.
SUCCES NIC COM SRL
Retail
899
Ilfov
4.
STRACO GRUP SRL
Construction
513
Bucharest
5.
OCEAM SRL
Retail
1,431
Iasi
21
PANORAMA
INSOLVENCIES CEE
Serbia - economy awaits stronger contribution from private
consumption
Fiscal consolidation and structural reforms are on
their way, but they have included unpopular measures such as a 10% nominal cut in compensations
and pensions, which have negatively affected
private consumption. Progress in implementing
restructuring is crucial and will bring further risks
if it fails or delays. Coface forecasts that GDP
growth will speed up to 2.0% this year and 2.5% in
2017. Nevertheless, the situation of public finances
will remain challenging, with the general government deficit slightly below 3% of GDP in the best
case scenario, while gradually increasing public
debt will creep closer to 80% of GDP.
Serbia’s economy recorded a weak growth rate
of 0.7% last year. This was, however, an improvement following the recession experienced in 2014,
where the growth rate was -1.8%. Unlike most other
CEE economies, Serbia did not have the benefit
of private consumption being the main growth
driver. Household consumption decreased for a
fourth year in a row, caused by the weak labour
market. The decline in real wages reached 2.5%
y/y last year and the restructuring of state-owned
enterprises will result in further redundancies. The
unemployment rate remains high, at 17%, even
though it has declined in recent years. Retail trade
and wage data for the first few months of 2016
signals that some revival in household consumption is likely to take place.
2015 growth was fueled by growing investments
and the positive contribution of net exports. Investments benefited from significant monetary
easing and the improving business environment.
The recovery of trading partners supported the
growth of exports, which are mostly destined for
Italy, Germany, Bosnia and Herzegovina, Russia
and Romania. As a non-EU country, it was expected that Serbia would benefit from its free trade
agreement with Russia and not being covered by
the Russian embargo – but this did not lead to a
significant increase. The Russian recession resulted in a contraction of Russian imports, but even
in 2014, when Russian growth was positive, Serbia
only sent 7% of its total exports to the country.
Nevertheless, total exports should support Serbia’s economic activity again this year, with the
benefits of demand coming from EU markets.
However, as a small economy, Serbia is not able
to offer a wide supply of exportable goods. Its accession to the European Union remains a priority
for the government.
Chart 16:
Unemployment rate (%, working age population 15-64 years old)
Source: Statistical Office of the Republic of Serbia
Facing improved, but still challenging economic
conditions, company insolvencies rose by 7.0%
y/y in 2015, to reach 4.05%. As seen in many
other economies, the worst performing industries
included the steel and construction sector.
Indeed, the two biggest insolvencies in Serbia last
year were companies from the steel sector. With
a gradual rise in household consumption, increasing confidence, the effects of past monetary
easing, growing foreign direct investments and
public investments, along with increasing foreign
demand, the corporate sector should experience
an improved environment and conditions for
doing business.
22
PANORAMA
Top 5 sectors
INSOLVENCIES CEE

Flop 5 sectors
IT
Steel
Telecomunications
Construction
Oil industry
Food
Pharmacy
Retail
Agriculture
Wholesale

The 5 biggest insolvencies in 2015
Company Name
Sector
Number of
employees
Town
1.
SIRIUM STEEL DOO
Steel
270
Sremska Mitrovica
2.
FABRIKA ŽELEZNIČKIH VOZILA
ŽELVOZ
Steel
392
Smederevo
3.
KONCERN FARMAKOM M.B. ŠABAC
Food
457
Šabac
4.
BIP AD
Food
530
Belgrade
5.
INDUSTRIJA MAŠINA I TRAKTORA AD
Machinery
809
Belgrade
PANORAMA
INSOLVENCIES CEE
23
Slovakia - attracting further automotive investments
Land Rover has announced investments worth
more than EUR 1 billion, with the construction of a new factory beginning this year and
In 2015, the Slovak economy expanded by 3.6% production scheduled to take off in late 2018.
- the strongest result for four years. The main This major investment will contribute to enhancontribution came from gross fixed capital for- cing the GDP growth rate over following years.
mation, thanks to a higher usage of EU funds at
the end of the drawing period of the previous Growth in 2016 will be driven by household
EU budget. As a result, investments delivered 2.9 consumption, which is benefiting from the healpercentage points of total output growth - the thy situation of the labour market, with rising emhighest contribution since 2005. Another compo- ployment opportunities and wages. Although prinent of domestic demand, private consumption, vate investments will not contribute to growth as
also made a solid input to economic activity, as much as they did last year, investments in addition
it benefited from the improving labour market, to the Jaguar Land Rover project investment will
wages growth and negative inflation. Slovakia’s be seen. The ECB’s accommodative monetary pounemployment rate has been on an improve- licy will support businesses in making fixed investment track and declined to 11.5% last year - whe- ments. Production from the automotive sector is
reas not so long ago, in 2013, it stood at 14.2%. In mainly for export and relatively good demand
April 2016, unemployment decreased further, to prospects will support the industry’s growth. The
10.2%. An annual single-digit average is likely to slowdown of the Chinese economy and the Rusbe reached in 2017. Although the current level is sian recession could still drag on sizeable export
an improvement, Slovakia’s unemployment rate is increases but exports to the country’s main parhigher than the EU average, as well as that of its tners (including Germany, the Czech Republic
main regional peers. The country has experienced and other EU economies) seem to be secured.
higher levels of long-term and youth unemploy- This does not only apply to the automotive sector
ment than its neighbouring economies. The go- but to exports overall.
vernmental’s social package aims to reduce the
Chart 18:
regional disparities which are also a characteristic Company insolvencies, by sectors, in 2015
of the Slovak labour market. On the positive side,
real wages increased by 3% in 2015, the minimum
wage rose to EUR 405 and salaries of civil servants progressed by 4%. Further growth in wages
will support household purchasing power.
The automotive sector remains an important part
of the economy. Slovakia is the largest car producer per inhabitant in the world, manufacturing
184 cars per 1,000 inhabitants. Good perspectives
for the sector contributed to the pronounced results in industrial production last year. The Volkswagen scandal does not seem to have had a
devastating effect on the brand’s sales. This had
brought some threats, as Volkswagen accounts
for a 40% share of Slovakia’s total car production. Source: Coface
Chart 17:
Car production in Slovakia (thousands)
Against the backdrop of good economic conditions and solid growth, Slovak companies have
been operating in comfortable business conditions. Last year, company insolvencies dropped by
14.6%, y/y. Besides overdue payments as causes
of bankruptcies, businesses have also expressed
they are still feeling the negative effects of the
Russian embargo on their exports, a factor which
is deepened by Russia’s recession. Thanks to the
speeding up of EU structural funds, the construction sector began to recover, following its decline over the six previous years. Insolvency data
showed a 20% decrease, y/y, in the number of
Source: OICA
construction company insolvencies. Nevertheless,
the share of the construction sector in total banThe industry achieved growth of 6% in 2015, kruptcies is relatively high, accounting for 15% last
with the total number of manufactured cars year. Due to the challenging situation in the steel
exceeding 1 million units for the first time in the sector, Slovakia’s biggest bankruptcy in 2015 was
country’s history. In addition to Volkswagen, Slovakia Steel Mills. The company’s total debt, of
major car manufacturers in Slovakia include EUR 244 million, by far exceeded its turnover of
KIA Motors and PSA Peugeot-Citroën. Jaguar EUR 80 million in 2014.
24
PANORAMA
Top 5 sectors

INSOLVENCIES CEE
Flop 5 sectors

Mining and quarrying
Water supply, waste management and
remediation activities
Education
Electricity, gas, steam and
airconditioning supply
Health and social work
Real estate activities
Financial and insurance activities
Wholesale and retail trade
Professional, scientific and technical
activities
Manufacturing
The 5 biggest insolvencies in 2015
Company Name
Sector
Number of
employees
Town
1.
SLOVAKIA STEEL MILLS, a.s.
Manufacture iron and steel
250-499
Strážske
2.
BIO OIL s.r.o. & co., k.s.
Collection of waste
3-4
Špačince
3.
KOVOD, a.s.
Collection of wholesale of waste
and scrap
50-100
Banská Bystrica
4.
FARMSYSTEMS s.r.o.
Wholesale of agricultural machinery,
equipment and supplies
10-19
Pribeta
5.
Berto sk, s.r.o.
Production of meat products
150-199
Vysoká pri Morave
25
PANORAMA
INSOLVENCIES CEE
Slovenia - improvements for the
economy and corporates
baseline scenario but remain possible. Slovenia’s
main export countries are Germany, Italy and Austria but regional peers (Croatia, Hungary, Serbia),
along with Russia, are also among the leading
destinations for shipments.
Subsequent to two years of recession in 2012 and
2013, Slovenia returned a solid growth of 3.0% in
2014. This pace saw just a slight decrease last year,
to 2.9%. Strong exports and recovering domestic
demand fueled the country’s economic expansion
in 2015. As with other CEE economies, there was
a positive stimulus from EU funds at the end of
drawdown period. Although public investments
rose slightly, a strong rebound in private investments was constrained by continued deleveraging. Construction activities decreased last year
and were unable to prolong the recovery which
started to be experienced in 2014. Industrial production, on the other hand, recorded the highest
growth rate for the last five years, mainly supported by increased manufacturing volumes of cars
and other transport equipment.
Private consumption strengthened its contribution to GDP growth, thanks to the improving
labour market. Nevertheless, wages growth was
moderate and the average unemployment rate of
9.0% in 2015 was only slightly better than levels
recorded in 2013 and 2014 (and still higher than
rates recorded in the years up until 2012). In 2015
the rise in employment was low, mainly due to an
increase in self-employment. The private sector,
especially manufacturing, is likely to increase the
number of employment opportunities this year
and a further contraction in unemployment can
already be seen in hard data. The unemployment
rate dropped to 7.8% in April 2016.
On the public finance side, general government
deficit was much lower than the peak value of 15%
of GDP recorded in 2013 and it fell further from 5%
of GDP in 2014, to 2.9% of GDP in 2015. This improvement was a result of increased tax revenues, including value added and corporate income taxes.
Activities of the Bank Asset Management Company (BAMC), to which non-performing assets of
the banking sector have been transferred, have
contributed to widening the deficit. However,
budgets for 2016 and 2017 forecast reductions in
deficits, down to 2.1% and 1.7% of GDP, respectively. In June 2016, the European Council closed
the excessive deficit procedure for Slovenia. This
was thanks to the reduction of deficit to below 3%
of GDP and based on the European Commission’s
forecasts for deficits of 2.4% of GDP in 2016 and
2.1% in 2017.
Chart 20:
Company insolvencies, by sectors, in 2015
Chart 19:
General government deficit (%)
Source: Coface
* Coface forecast
Source: Coface
Household consumption will be the main growth
driver for 2016 and 2017, while the contribution of
exports will remain significant, but lower. The latter will mainly be caused by higher imports. Risks
relating to slowing foreign demand are out of the
Improvements were experienced not only on the
macro side, but also by corporates. In 2015, company insolvencies decreased by 34.3%, y/y. Rising
demand supported trade companies, whose
share in total insolvencies dropped to 17% last
year, down from 21.4% in 2014. Favourable economic conditions, along with construction projects financed with EU funds, contributed to this
noticeable decrease, even though the sector is
still present in the flop list of Slovenian industries.
Its delayed recovery prevented it from showing a
rebound in insolvency statistics.
26
PANORAMA
Top 5 sectors

INSOLVENCIES CEE
Flop 5 sectors

Human health activities
Gambling and betting activities
Creative, arts and entertainment
activities
Financial service activities, except
insurance
Repair of computers and personal and
houshold goods
Construction of buildings
Information service activities
Mining and quarrying
Manufacture of furniture
Manufacture of other transport
equipment
The 5 biggest insolvencies in 2015
Number of
employees
Company Name
Sector
Town
1.
CIMOS d.d. AVTOMOBILSKA
INDUSTRIJA
Automotive parts
1,020
Koper
2.
T-2
Telecommunications
302
Ljubljana
3.
POMURSKE MLEKARNE d.d.
Manufacture of dairy products
157
Murska Sobota
4.
Seaway Yachts
Building of pleasure and sporting
boats
112
Puconci
5.
JAVOR PIVKA
Manufacture of veneer sheets and
wood-based panels
334
Pivka
27
PANORAMA
INSOLVENCIES CEE
Ukraine - Still weak performance
on the cards
Exports declined last year and the dynamics remained negative during the first months of 2016.
Although its currency has depreciated, Ukraine is
unable to benefit much from its increased competitiveness, as the prices of its main export products
(steel, coal and agricultural raw materials) are
fixed on global or regional levels. Moreover, slow
growth in production remains another constraint.
Weaker export volumes were also recorded for
shipments to EU markets. Although the Deep and
Comprehensive Free Trade Agreement (DCFTA)
with the EU became valid at the beginning of this
year, it has not resulted in an upswing of exports.
Ukrainian exports have already benefited from
free access to EU markets, for most goods, since
2014 and the DCFTA seems to be supportive
for EU exporters. However, the weakness of the
Ukrainian hryvnia hampers the domestic demand
and the expansion of EU exporters in Ukraine is
also constrained as a consequence. Despite the
tensions between the two countries and the
recession of the Russian economy, Russia is still
Ukraine’s biggest export destination. In addition
to a contraction in demand from Russia, Ukrainian exports are also suffering from an imposed
Russian embargo on food, with import duties on
other products and restricted transit of Ukrainian
goods to third countries.
The weak performance of the Ukrainian economy
reached its lowest level last year, with GDP growth
contracting by 9.9%. A slow improvement is anticipated but the recession will still be present this
year (forecast GDP growth of -3.0%), leading to a
positive growth rate of 1.5% in 2017. Although the
figure for 2017 will not be impressive, if it does
materialise, it will be the highest growth rate since
2012.
The Ukrainian economy has been suffering from
war-related destruction, which has resulted in the
loss of the production and export capacities in
the two separatist provinces in the east (Donetsk
and Luhansk). It is here that a large percentage of
the country’s steel production facilities and coal
mines are concentrated. The deep recession figure
for 2015 does not include occupied territories and
a part of the anti-terrorist operation zone. Even
so, industrial production dropped by 13% last year,
with huge decreases recorded in the Donetsk and
Luhansk regions, of 35% and 66%, respectively.
Nevertheless, the country’s poor economic activity was mainly caused by the negative contribution from household consumption. High inflation
(at almost 50%) and the heavy depreciation of
the hryvnia resulted in reduced household purchasing power. Public sector wages and pensions,
which were frozen last year, are to be indexed by a
total of 12.5%. However, this will be insufficient to
boost private consumption, especially as Coface
forecast’s an inflation rate of 20% this year.
Chart 21:
Real average wages (%, yearly dynamics)
The country’s economic deterioration and weak
confidence indicators also had a negative effect
on the corporate side. Companies are suffering
from challenging business conditions and a slump
in demand. Against this backdrop, insolvencies in
2015 increased by 20.8%, y/y. Even though this
is already the highest surge by comparison with
the rest of the region, many Ukrainian companies
went out of business without even filing for insolvency in the course of last year. As the economy is rebounding very slowly and business conditions remain challenging, Coface anticipates that
the number of company insolvencies in Ukraine
will increase again in 2016.
Source: State Statistics Service of Ukraine
RESERVATION
This document is a summary reflecting the opinions and views of participants as interpreted and noted by Coface on the date it was written and
based on available information. It may be modified at any time. The information, analyses and opinions contained in the document have been
compiled on the basis of our understanding and interpretation of the discussions. However Coface does not, under any circumstances, guarantee the
accuracy, completeness or reality of the data contained in it. The information, analyses and opinions are provided for information purposes and are
only a supplement to information the reader may find elsewhere. Coface has no results-based obligation, but an obligation of means and assumes
no responsibility for any losses incurred by the reader arising from use of the information, analyses and opinions contained in the document. This
document and the analyses and opinions expressed in it are the sole property of Coface. The reader is permitted to view or reproduce them for internal
use only, subject to clearly stating Coface’s name and not altering or modifying the data. Any use, extraction, reproduction for public or commercial
use is prohibited without Coface’s prior agreement.Please refer to the legal notice on Coface’s site.
Photo (c) fotolia
COFACE SA
1, place Costes et Bellonte
92270 Bois-Colombes
France
www.coface.com